Why forex trading news is dangerous
Are you considering forex trading through news releases? We take a look at some factors that might cause you to have a rethink.
Forex news trading simply involves getting into the market during a release and trying to catch the initial market move. For many engaged in forex trading this style of trading is a quick way of making money from the markets. However, for every account built by sharp swings during a market release another account is destroyed. This makes forex news trading as hard as swimming in shark infested waters.
Other reasons why you should be wary of forex news trading
- It is largely dependent on market expectations
This is what many individuals fail to grasp a lot of the time. Forex trading of news is more reliant on the expectations of the market than on the green or red numbers appended next to a currency. To gauge the market expectations is a big task, especially for newcomers to the news trading world.
For example, there are times when the big players are more concerned about the revision of the preceding month’s number, while ordinary traders would be more concerned with the actual numbers itself. In this situation, you will find the market swinging heavily in a direction that seems counter-intuitive. This is what happens on those days when negative numbers are released for the EURO for instance, but the currency keeps rising.
- Traders are at risk of slippage
Slippage is a regular occurrence in highly volatile forex trading conditions, such as is witnessed during news releases. Slippage occurs when your order is filled far away from the price you actually made the trade. Depending on the volatility, the difference could be as much as 50 pips in some cases. When this happens, the trader instantly begins to nurse a bad trade, and if the market doesn’t move in his direction the trader ends up with a sizeable loss. Trading during news normally means that stop losses have to be relaxed to account for the volatility. This further exasperates the frustration and increases the average trade loss.
- Increased spreads
It is no longer news that brokers widen spread during hotly anticipated releases like the NFP. Some brokers have even added this in their terms and conditions of trading so it is not dubious. The increases can be triple the normal spread on certain instruments, so if you are trading at this time, you must keep this in mind.
- Frozen platforms
This is a regular occurrence for traders using brokers that struggle to handle the influx of orders during news releases. The platform may stop responding or refuse to connect to the internet. In some instances the platform is working but is showing prices that are entirely different from real life market conditions. This last scenario is commonly seen with bucket shop brokers who are out to cheat clients.
You should now be fully aware of what you are going into if you decide to join the forex news trading train. Of course you may be considering joining this train because institutional traders are known to make the bulk of their profits in this manner. You must realise though that they have endless streams of income which you do not have, coupled with the superfast news feeds and specially designed trading platforms.
If you must go into forex trading of the news then you need to devote 3 months to trading a handful of high impact releases on a demo account. After this you should be able to decide for yourself, based on your profit and loss, whether you you can be profitable in this type of forex trading.